Breach of Duty of Good Faith results in Award of Punitive Damages and Sends Message to Employers

December 2016

A recent decision of the Ontario Superior Court saw the court award $50,000 in punitive damages to a plaintiff in a wrongful dismissal action. The court concluded that the defendant employer breached its duty of good faith to its former employee by asserting cause for dismissal when there was no reasonable basis for such an assertion and by engaging in behaviour calculated to financially impact the plaintiff. Although the court found the plaintiff did not prove his claim for aggravated damages, it concluded the defendant’s conduct was so reprehensible that punitive damages were appropriate in the circumstances.

The Facts

The plaintiff, Mr. Morison, was 58 years old at the time of his dismissal and had worked for Ergo-Industrial Seating Systems Inc. (“Ergo”) for over eight years. Mr. Morison was Ergo’s regional manager and was unaware of any issue relating to his employment until he was informed his employment was terminated.

Ergo alleged just cause for termination in spite of the fact that the company’s owner and President offered Mr. Morison five months’ notice, including one month of working notice, when he was terminated.

Mr. Morison alleged that Ergo did not act fairly and that there was no basis to allege just cause. He said that allegations of cause were made in bad faith to facilitate a more favourable settlement.

The Decision

The court reviewed the kinds of damages available in an action for wrongful dismissal, noting the general rule that damages are limited to those resulting from an employer’s failure to give proper notice and that no damages are available to an employee for the actual loss of his or her employment or for the pain and distress that may have been suffered as a result of being terminated.

With respect to Mr. Morison’s claim for aggravated damages, the court found there was evidence of bad faith or unfair conduct during the dismissal, but insufficient proof of mental distress caused by Ergo’s conduct to ground an aggravated damages claim.

The lack of evidence of mental distress was not an impediment to the court concluding that punitive damages were appropriate. The court found that Ergo’s conduct was completely inconsistent with the allegation of cause and that Ergo had asserted just cause “for tactical and financial gain considerations”. The court concluded that alleging cause was an integral part of Ergo’s negotiation strategy and the company did not act fairly or in good faith in the manner of dismissal of Mr. Morison. Ergo was not candid, reasonably honest, nor forthright. Ergo committed an actionable wrong – the breach of its duty of good faith.

The court found that Ergo’s conduct was malicious, oppressive and high handed and that an award of punitive damages was “rationally required” to punish the company and to meet the objectives of retribution, deterrence and denunciation. A proportionate and reasonable award to meet these objectives was $50,000.

Advice for Employers

This case serves as a reminder – and a warning – to employers to be careful when asserting just cause for dismissal of their employees. If there is no reasonable basis for alleging just cause, or if the employer’s conduct during the termination process is calculated to financially impact a terminated employee, there may be significant consequences in the form of hefty punitive or aggravated damage awards over and above any reasonable notice period awarded by the court.